Business & Finance Perspectives

As the prevalence of households using in-home assistance increases, it is important to be reminded of the repercussions of the “Nanny Tax.” For instance, as our senior citizen population grows, more and more families are employing senior caregivers. If you hire a caregiver that is paid more than $2,000 per year, the IRS says you may be a household employer with the corresponding payroll and tax responsibilities – the Nanny Tax.
Nanny tax compliance requirements can vary by state. For example in Pennsylvania the household employer must: withhold some taxes, such as unemployment ; pay the employer’s portion of Social Security, Medicare, and Federal and State unemployment taxes; file some quarterly tax forms; and, prepare and file some year-end forms including the W-2.
The employer vs. contractor distinction is very important. Families that misclassify a household employee as an independent contractor (by providing the employee with a Form 1099 for filing taxes) can be charged with tax evasion, and be subject to penalties, interest, employer back taxes and employee FICA taxes. Apart from tax laws, there are labor regulations that require strict adherence as well, including workers’ compensation insurance, minimum wage and overtime compliance, and many others. Nationally, the lack of compliance with household employees has caused the IRS and the Department of Labor to collaborate to increase enforcement, so the issue is not going away.
If you have household employees that may be subject to these regulations, we urge you to discuss it with a tax professional. In addition to the peace of mind that comes with compliance, a tax adviser might also discover some favorable tax treatments, such as with Child or Dependent Care Tax Credits. We’re here to help!

The Internal Revenue Service (IRS) recently announced that for only the third time in 40 years, there will not be a cost of living adjustment (COLA) for Qualified Retirement Plans in 2016. COLA is tied very closely with Social Security (SS), and as a result Social Security beneficiaries will not receive an increase in their monthly benefits. However, due to the hold-harmless provision[1], anyone whose Medicare costs are deducted from their SS benefits will not see an increase in their monthly premium.
Indeed, the last decade has seen small increases for SS beneficiaries—the total COLA increase over the past 8 years has only been 14.3%, compared to nearly 70% in the first eight years that it was introduced.
Due to the lack of a cost of living adjustment, many Medicare beneficiaries will not see an increase in their benefits. In fact, it is expected that roughly 30% of Medicare Beneficiaries will see an increase in the cost of Medicare. The groups of Beneficiaries expected to be impacted include:
· New Enrollees
· Enrollees that do not receive SS benefits
· Enrollees with higher incomes
As a result of this Medicare cost increase, AARP and 70 other consumer advocacy groups has asked Congress to extend the hold-harmless provision to all Medicare beneficiaries; not just the 70% who currently receive Medicare Part B and are eligible for the provision. AARP sent Congress a letter on October 14th, 2015 urging them to extend the provision before it goes into effect on January 1st, 2016.
For a summary of the Cost-of-Living Adjustments by Code Section for the past 5 years, follow the link: http://www.urishpopeck.com/pdf/EBPCommentator-COLA-SE2015.pdf
[1] A legal statement prohibiting an increase to Medicare B premiums for the vast majority of American citizens. The Medicare hold harmless provision ensures that Medicare B premiums cannot rise more than the previous year's cost of living increase in Social Security benefits.